The Endowment: Fundraising Nirvana for International Schools
I’ve mentioned before that the Annual Fund is the foundation of all giving at international schools: every year, it allows us to introduce to new community members the concept of financially supporting the school, and re-introduce it to existing members. But while the Annual Fund should grow to be an important part of the current operating budget, it can still be as unpredictable as tuition revenue (especially when it’s mostly current parents who are supporting it.) Real financial security comes from having a sizable account whose return on investment not only supports the operating budget, but insulates us from the vagaries of the economy. That account is the Endowment.
We all work or volunteer at schools that are constantly aspiring to improve learning. Those aspirations include new personnel, new programs, new facilities, etc, all of which cost money (show me a school that says it has aspirations but doesn’t need more money, and I’ll show you a school without aspirations). If we base these improvements on tuition increases alone, the continued existence of those new personnel and programs remains as precarious as tuition revenue (not to mention the fact that raising tuition to achieve our aspirations makes us more financially elitist than we already are).
In order to secure the improvements that we are making, we must have an Endowment that is large enough to allow us to weather any tuition downturns without having to immediately cut our personnel, our programs… and our reputation.
Perhaps the most important point to understand about the Endowment is that it is not simply another word for a savings account or cash reserves: the capital of the Endowment cannot be spent, whereas (barring any binding policies to the contrary), the current Board could conceivably spend as much of the cash reserves as they want for a current project. They might also choose to not invest it. Both of these sound extreme, but I am aware of at least one school that refused to invest its cash reserves because they were concerned about having to explain any decrease in value to the community (ignoring the fact that not investing it guaranteed that it lost value). And another school where a Board member proposed blowing the entire nascent Endowment (whose policies hadn’t yet officially been established, but whose donors had given to support financial aid) to give a tuition break to current families during covid.
By creating a real Endowment with investment and use policies, the current Board is doing its job to ensure the future of the school. Building an Endowment is the ultimate commitment to the long-term health of the school, because these things do take time. As the Chinese philosopher Lao Tzu said; “The journey of a thousand miles begins with one step”. This was immaterial to that same Board member who wanted to blow the nascent Endowment, who said, “Why bother with the Endowment when it’ll take forever for it to be worth anything?” Which of course totally neglects the Trustee’s responsibility to ensure the future of the school; his time horizon for the school was evidently less than for his own retirement, seemingly only extending to his own children’s graduation. Given that I seem to be in a quoting mood, this is a good place to insert the Indian proverb, “Blessed is he who plants trees under whose shade he will never sit.”
The Endowment is also a vehicle which allows donors to restrict the use of their gift. You’ll recall from my explanation about the Annual Fund that it is (like tuition) unrestricted, and that while we must make a Case for Support of the Annual Fund, its unrestricted nature is not always appealing to all donors… some of whom would like to ensure that their gift goes towards something about which they are passionate. The wonderful thing about having an Annual Fund and an Endowment is that while the Annual Fund allows us to broach the subject of financial support of the school every year with all community members, the Endowment allows us to advance the conversation with those who are looking to do even more.
Having said that, while we’ll accept any size gift to the Annual Fund, a donor must be willing to commit a sizable gift to the Endowment in order to create their fund and restrict its use. How sizable is up to the school, but depending on what it’s for, it might be something along the lines of $50,000, which might be donated over the course of, say, five years. This amount would create a named fund within the Endowment (“The Clive Watkins Memorial Scholarship Fund”), the proceeds from which may only be used (as the name suggests) for scholarships. In addition to creating it now with the minimum amount, I might also add to it every year (or whenever I feel like it), and even direct a larger amount to be given as part of my estate planning. My heirs might even continue the tradition of supporting it themselves. The same policies that govern the investment and use of the entire Endowment would be applied to “my” fund. Every year, I (or my heirs) would receive a report on the value and use of the fund, perhaps along with a letter from a teacher or student who has been impacted by the fund.
$50,000 may not seem like a lot when we hear about Endowments of $1.3 billion (in 2020) at a place like Phillips Exeter, but (another quote, sorry) as the philanthropist Percy Ross said, “Many drops make a bucket, many buckets make a pond, many ponds make a lake, and many lakes make an ocean.” Exeter’s $1.3 billion Endowment is made up of 1,464 individual funds created over 240 years. How sad would it have been if they had had a Trustee who convinced the others not to bother because it would “never be worth anything”?
One final note (for now) on the Endowment and the Annual Fund: experienced major donors are familiar with these best practice vehicles, and they will want to see that your school is capable of stewarding their gift. We are currently speaking with a major donor who is considering a substantial estate gift that would fund a faculty position in perpetuity at our school; he has already done this at a major university in the US. He made a special visit to speak with us to ensure that we knew what we are doing and had the infrastructure in place to manage this kind of major gift. If we were still tinkering with a tentative, understaffed Advancement Office, galas, raffle tickets, “mini capital campaign” Annual Funds, and rogue Trustees with the ability to do as they wish with the Endowment… well, it’s highly doubtful that the conversation would have progressed much further.
Speaking of, “a tentative, understaffed Advancement Office,” I’ll share my thoughts on my ideal staffing of a start-up office next time.